Fitch Ratings Says CMBS Delinquencies Continue Downward

8/14/2013 | By Carisa Chappell

The number of commercial mortgage-backed securities (CMBS) delinquencies in the United States declined in July 2013 to the lowest levels since the end of the recession, according to the latest monthly index data from Fitch Ratings.

Late payments from CMBS declined 40 basis points in July, going down to 6.78 percent from 7.18 percent in June. After peaking two years earlier at 9.01 percent in July 2011, the CMBS delinquency rate is currently 2.23 percentage points below that high.

Mary McNeill, managing director at Fitch Ratings noted that the numbers for July were primarily driven by one transaction involving Orix, a financial corporation. The Orix deal accounted for $759 million of dispositions. Delinquency rates for all major property types were down in July thanks to the Orix sales, according to the Fitch report.

Delinquencies on office loans, which have been underperforming recently, showed the most improvement in July. They fell nearly 60 basis points from the previous month.

However, McNeil said that not all office properties are witnessing improving delinquency rates.

“Office properties in secondary and tertiary markets remain a challenge, as do retail malls with struggling sales and nearby competition,” she said.

Overall, the Fitch data show that the hotel sector has been the best performer in terms of resolving loans. The delinquency rate in the sector has fallen from21.3 percent in September 2010 to 8.04 percent in July

“Hotel loans are typically the most volatile due to lack of long-term tenancy and daily resetting of rates as business and leisure travel impact their performance more immediately.”

McNeil said the delinquency rate is expected to continue to fall. She added that some months will see bigger movements than usual as large loans in the index are resolved.

Fitch noted that CMBS loans becoming delinquent are also continuing to decrease in size. The average loan size of new entrants was $8.5 million, with just four loans more than $25 million entering the index.

McNeil also added that one of the trends in the CMBS market is that newly originated loans have lower interest rates and increasing interest-only periods, which will lessen the term risk.

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